Transparency and banking are two words not usually complimenting each other in any positive context. Never has there been mainstream news shining the light on major bank practices of inviting the public to view their books on a continual basis. Yet at the same time, we hear (and many may believe or at least are apathetic to) their messages, day in day out offering the “lowest rates” for loans or “best returns” on deposits. Explanations of the macro view in the banking sector are forever shrouded in ambiguous technical jargon in combination with the narrative they are “doing everything possible” to provide the best conditions to the consumer.
There’s obviously a major gap between what is said and done.
- The gap between what banks say and do
- Transparency is the key to trust
- Regulations and Compliance – Celsius is doing what is needed
- Transparency Level 1: A Fully Backed System
- Transparency Level 2: Reading the Celsius Metrics
- Users, Assets Under Management, Cash & Collateral
- Most Deposited Coin
- Deposits and Withdrawals
- Interest Rates
The gap between what banks say and do
So when we hear of a new player in town creating an alternate banking market and making similar statements, it’s only natural to be sceptical. Celsius Network – offering customers the ability to earn reasonable interest on bitcoin, gold and other cryptocurrencies; get cash loans using crypto as collateral, as well as allowing users to transact peer to peer with crypto payments, may conjure up the same initial reaction – perhaps even more with “bitcoin” and “crypto” associated with “scam” often touted in mainstream media.
So how is this any different?
Transparency is the key to trust
The more complex an explanation then the more hidden the message, if there is a genuine one at all. Celsius ambitiously aims to increase their 140k user base, established over the last 2 years (the majority in the last few months) a 100-fold. They aim to achieve this through transparency to the community. This is at two levels:
– Level 1: Transparency of their core business model – in other words, how they say they will make money;
– Level 2: Transparency of their figures – real-time metrics to prove their business model is sustainable.
Clear message so far, right? Let’s look into the detail and (hopefully) assist potential users in deciding whether to take the next step with Celsius, or at least arm them with some comprehensive information.
Regulations and Compliance – Celsius is doing what is needed
Before we look at Transparency Level 1, a point on compliance. The 2017 initial coin offering bubble saw many exit scams and failures of companies for conducting activities without being registered by the Securities and Exchange Commission (SEC). In stark contrast, Alex Mashinsky, CEO of Celsius, took the strategic decision from the onset to be compliant with local regulations. This included proactively filing with regulatory bodies like FinCEN and the SEC. Celsius continues to reiterate the message they only offer services in jurisdictions with explicit approval.
Transparency Level 1: A Fully Backed System
So what do I mean by “fully backed”? Simply, the Celsius core business model is one where there are enough reserves available against the dollars (or assets) listed in a user’s account – for example dollars that can be used in a loan or savings account. Should be a no-brainer, right? Well, the Cyprus 2013 bail-in was a sobering example of account holder’s funds clipped significantly for the very reason they were not fully backed. Why is this? Because traditional banks leverage depositor’s funds at a rate of 10 times or even much more. For instance, for every dollar deposited, the banks lend over $10. So, if the banks don’t hold enough in reserve and if borrowers are unable to pay back loans, users will be unable to withdraw their funds because they probably don’t exist. Precarious right?
Celsius is at the opposite end of the scale ensuring they are always holding substantial reserves including assets greater in value compared to those that are lent out. Depositor’s crypto assets are pooled and lent out to professional customers such as hedge funds, exchanges and institutional traders who put up collateral exceeding the value of the loan in crypto they wish to take. In fact, the loans which are usually over a 2-week period are collateralised up to 150%. In other words, it’s a fully backed system.
Celsius also does not charge any fees. No account fees, whether monthly or annually as is the case with the majority of banks. And no withdrawal fees – a common theme practically across all crypto exchanges.
So the above sounds great but to use a well known bitcoin adage “don’t trust, verify”, how can one find if Celsius walks the walk?
Transparency Level 2: Reading the Celsius Metrics
So where can we find these transparent metrics? Easy, much of the necessary information is just a click away – in the Celsius mobile app. Once a user creates an account (with an email address and password) – which is before having to go through the identification (Know Your Client) process – they can simply click on the “community” button. This will bring them to the Celsius Community Page.
Users, Assets Under Management, Cash & Collateral
There are several key metrics all clearly labeled on this page. Some are real-time such as the number of members and others are released monthly for instance assets under management. The simple trend analysis here is – are the numbers going up? Is Celsius gaining more users and assets under their management? If so, then that provides one level of confidence in that the company is growing which aligns with holding on to more collateral and cash in the provisioning of loans and institutional investments to generate yield.
Ok, sounds like a good thing – but Ponzi schemes exhibit similar outward characteristics of growth, right?
Most Deposited Coin
Bitcoin as the most deposited coin is another positive indicator. The original and greatest cryptocoin with its unique characteristics in comparison to the thousands of altcoins demonstrates the fundamentals of Celsius Network are built on a solid foundation. Limited in supply, open, public and censorship resistant, bitcoin cannot be inflated or lent to more than one entity – unlike fractional reserve banking which is causing systemic problems within the traditional financial system.
Still don’t believe the figures? Go to Celsians.com under “statistics” and they actually verify the deposits on the blockchain.
Deposits and Withdrawals
The most basic function expected of a bank is to effectively and securely manage deposits and withdrawals. And in doing so ensure your funds are available for withdrawal upon your request. Therefore, wouldn’t it be handy to see these figures? That’s exactly what Celsius provides.
Further, I am sure alarm bells would ring if the ratio between deposits and withdrawals approached or dipped below 1. That is, if you knew there was more value being withdrawn than deposited, would you keep your money in that bank? Looking at the current ratio which is just under 2:1 and tracking this figure over time can provide additional confidence Celsius is heading in the right direction and that they actually have the funds available for lending. Further, Alex raises an important point on ensuring Celsius always has 20% of “idle coins” available at all times for withdrawals. I know what you may be thinking, what if everyone withdraws their coins at the same time? Yes, that would cause delays, however as mentioned earlier, with assets lent to professional customers collateralised at 150%, along with incentives for depositors to hold their money in Celsius to earn interest, then it becomes increasingly clear deposits are covered. Again, if you don’t believe the deposit/withdrawal numbers, Celsians.com have it tracked and verified. Sounding like a broken record now I know, but which bank does this?
Next is the crux of banking – interest. Which, mind you is becoming increasingly irrelevant for the average saver today experiencing close to zero, or worst still negative interest rates. Celsius displays Total Interest Earned in 12 Months as well as average interest earned across the whole population of Celsius users.
Interest is Annual Percentage Yield (APY), paid every Monday, either in the crypto currency the user deposited such at Bitcoin, Litecoin, Ethereum and many more, including a number of stable coins – or in the Celsius token, “Cel” (more on this later). For example, depositing in the USDC stablecoin will generate interest paid in USDC and therefore exchangeable 1 for 1 against traditional US dollars. So in fact, there is next to no risk with crypto volatility in this scenario.
Interest rates for the most popular cryptocurrencies at the time of writing this article are around 4-5%, with stablecoin such as USDC earning over 8% – a magnitude of order greater than most traditional banking standard savings rates. Just like the earlier metrics, seeing these figures increase over time is another positive indicator. Celsians.com offer an additional level of granularity in that they tweet the actual payouts of their most popular cryptocurrencies every week.